There’s often a misconception in business that operational effectiveness is being able to deliver a product or service at the lowest possible cost. And, as a result, companies typically only target cost efficiencies to improve margins.
But operational effectiveness is about so much more than just cost. Effectiveness is not driven by just improving margins and productivity, but also by equipping businesses for continued growth, scalability and agility – ensuring the organisation can pivot and adapt in challenging circumstances.
- Are your people aligned, engaged and effective?
- Do you have the right people in the right roles?
- Are processes documented and systemised, or do they rely on corporate memory?
- Has capacity been linked to business development targets?
- Does data drive decision making?
- Are the right systems in place?
- Is the customer at the heart of your plan?
These are all factors that need to be considered. Not only in terms of cost effectiveness and margin enhancements, but to ensure they are robust, agile and future-proof – allowing businesses to scale up without risking customer experience.
Arthouse is a leading designer and distributor of home decorative products and wall coverings to retail outlets both in the UK and overseas, across a range of sales channels and market sectors.
In order to create more agility in the supply chain, and provide the ability to access more innovation, the Arthouse team have focussed on driving operational effectiveness – watch the video to find out more!
DW3, a leading UK provider of high-quality premium door solutions and window systems and portfolio company from 2014-2018, is a prime example of how an already growing and successful business identified that further investment into its operational effectiveness was critical to deliver its sustainable growth plans.
Working alongside the CEO, Gareth Mobley, we supported the business through follow on investment into new production facilities, operational capacity, IT infrastructure, supply chain management and the development of an online door designer App.
After four years of working together and over five million pounds of investment into the business to facilitate growth, NorthEdge found an international buyer for DW3 that would ensure the company’s growth would continue on a global scale following our exit.
Masonite International, a business listed on the New York Stock Exchange, was impressed with DW3’s tech-enabled manufacturing capabilities and best in class operational KPI’s. NorthEdge led the exit process to deliver an exceptional return for all shareholders.
After our four-year partnership with DW3, the business had reported revenue growth of over 200% and had created over 150 jobs for the local community.
Knowing when to make changes
Before a business makes any changes to improve its operational effectiveness, it first needs to understand what's driving it - or what isn't. That can sometimes mean reviews of entire processes across a company, from production/development right through to customer service, to make sure every department has the infrastructure, processes and capacity available to allow it to scale up. Even in well-performing businesses, these exercises are vital in ensuring an organisation remains market leading.
It is only through building a complete picture of operational activities, and a detailed picture of costs, that the business can spot the patterns that indicate wasteful or inefficient processes. This makes sure you don’t hurt the customer experience or the ability to innovate and growPwC
The importance of data
The role of good quality data cannot be underestimated. The ability to review and evaluate data that truly reflects what is happening across a business is fundamental when assessing how operational improvements can be made. Analysing data in real time allows companies to gauge performance almost instantly, enabling them to quickly adapt and make changes to ways of working if required.
For instance, data can uncover patterns within the customer service teams that could inform areas for improvements when liaising with customers, ultimately helping a business to secure repeat revenue. Alternatively, it could understand where silos could be hindering collaboration, which in turn is making the sales process less efficient.
Investment in enhanced data capturing and storage systems can reap the rewards for businesses for years to come. It also lays the foundation for more advanced tools to be used alongside it.
Modelling and analytics tools, for example, can help businesses understand whether automating certain areas of a business could improve productivity and effectiveness - and how much by. At the same time, analytics tools can assess where those staff members can be relocated to across a business by evaluating capacity and identifying areas in an organisation that could benefit from a larger workforce.
Businesses have never had access to as much information about their organisation as they have today, and successful companies are the ones who take advantage of this when improving their effectiveness and planning for growth.
Making improvements to operational effectiveness can be a challenging task for any business and requires management to thoroughly examine what areas of the organisation are holding the company back from increased success. In private equity we partner with businesses, working together to make strategic improvements that enable sustainable, long-term success.
The role of private equity
One of private equity’s fundamental roles is to equip a business for future and sustained growth.
Identifying ways to enhance operational effectiveness is a key ingredient in how we support businesses, by helping companies find the right equilibrium between cost-effectiveness and scalability for continued growth.
There’s often a misconception that the private equity sector focuses on stripping costs, but that isn't the case. Our goal is to make existing operations work harder for businesses - improving their agility, effectiveness and not limiting future potential.
DW3 is a prime example of how operational improvements can be made through investment rather than cost reduction, and utilising data to drive decision making. This enabled the business to substantially increase sales and lay the foundation for continued, sustainable growth.